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CHAPTER 15
FINANCIAL ASSET AT FAIR VALUE
Assets not directly identified with
the operating activities of an
entity
Accretion of wealth
such as interest,
dividends, royalties &
rentals
INVESTMENTS
Investments are assets held by an entity for
the following REASONS:
Capital appreciation
such as in investment in
land and real estate held
for appreciation & direct
investments in gold,
diamonds and other
precious commodities
Ownership control
such as investment in
subsidiaries & associates
EXAMPLES OF INVESTMENT:
1. Trading securities or financial assets held for trading
2. Financial asset at fair value through other comprehensive
income
3. Investment in nontrading equity securities
4. Investment in bonds or financial asset at amortized cost
5. Investment in associate
6. Investment in subsidiary
7. Investment in property
8. Investment in fund
9. Investment in joint venture
Assets that occupy on an auxiliary
relationship to the central
revenue producing activities of
the entity
Meeting business
requirements
such as in investment in
sinking fund, preference
share redemption fund,
plant expansion fund and
other noncurrent fund
Protection
such as interest in life
insurance contract in the
form of cash surrender
value
STATEMENT CLASSIFICATION
Current- intended to be held for not
more than one year. (Trading
securities)
Non-current- intended to be held for
more than one year or are not
expected to be realized within 12
months after the end of the reporting
period
Financial instrument – is “any contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument of another entity” (PAS 32.11)
Financial Asset – any asset that is:
1.
2.
3.
4.
5.
Cash
An equity instrument of another
entity
A contractual right to receive cash or
another financial asset from another
entity.
A contractual right to exchange
financial instruments with another
entity under conditions that are
potentially favorable, or
An entity instrument of another
entity
Examples:
*Cash and cash equivalents
*Receivables
*Investments in equity or debt instruments of
other entities such as held for trading securities,
investment in subsidiaries, associates, joint
ventures, investment in bonds
*Sinking fund
Not Financial Assets:
*Physical assets (inventories, biological assets,
PPE and investment property
*Intangible assets
*Prepaid expenses & advances to suppliers
*entity’s own equity instrument (treasury
shares)
Financial Liability – any liability that is:
1.
2.
3.
A contractual obligation to deliver
cash or another financial asset to
another entity.
A contractual obligation to
exchange financial instruments
with another entity under
conditions that are potentially
unfavorable; or
A contract that will or may be
settled in the entity’s own equity
instruments and is not classified as
the entity’s own equity instrument.
Examples:
*Payables
*Lease liabilities
*Held for trading liabilities
*redeemable preference shares issued
*security deposits and other returnable
deposits
Not Financial Liabilities:
*Unearned revenues & warranty obligations
that are to be settled by future delivery of
goods or provision of services.
*Constructive obligations
*Those arising from statutory requirements
such as deferred tax assets/liabilities, SSS,
Pag-ibig, Philhealth liabilities
Example of financial instrument–
is a Bank deposit
that gives rise to financial asset
(Cash in bank) on the part of the
depositor, and a financial liability
(deposit liability) on the part of the
bank
The depositor has a contractual
right to withdraw his cash
The bank has the contractual
obligation to deliver cash when the
depositor withdraws.
CLASSIFICATION OF FINANCIAL ASSETS
1. FA measured at fair value
through profit or loss ( FVPL)
2. FA measured at fair value
through other comprehensive
income (FVOCI)
3. FA at amortized cost
The above classification is
dependent on the business model
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for managing financial assets.